Debt-to-GDP Ratio

(redirected from Debt-GDP Ratios)

Debt-to-GDP Ratio

A ratio of a country's national debt to its GDP. The debt-to-GDP ratio is one way to estimate whether or not a country will be able to repay its debt. The higher the ratio is, the more likely a country is to default because its government has borrowed too much relative to the ability of the country as a whole to repay. This may affect the country's sovereign credit rating. However, this ratio is not the only metric used. For example, the United States and the United Kingdom maintain national debts that approach 100% of GDP, but both have AAA credit ratings because the political risk in both countries is very low.

References in periodicals archive ?

It adopted new statutory anchors and debt-GDP ratios for the Central government and general (Centre and states) government on the suggestion of the N.K.

Is falling Indian rupee pointing to a larger economic problem?

Small changes in large programs can have a significant effect on future debt-GDP ratios. Only three programs--Social Security, Medicare, and Medicaid--constitute 51 percent of total federal spending.

Even while the deficit is relatively low, it is not low enough to lower the debt-GDP ratio significantly.

If interest rates remain near today's unusually low levels for several years and all else remains equal, it is difficult to argue that the country faces a very serious long-run budget problem, because the debt-GDP ratio would be put on a declining path.

The fiscal risks created by interest rates can only be reduced by reducing the debt-GDP ratio. Options for doing that will be considered later in this article.

The changing nature of the long-run federal budget problem

To reinforce this point we construct bar diagrams with median debt-GDP ratios and median growth rates for different sub-periods in Figure 2.

As growth declines, debt-GDP ratio rises, so the causality may run from low growth to high debt-GDP ratios.

For example, high public debt could be used to improve schooling which is found to have a larger positive impact on growth than the estimated negative impact of public debt-GDP ratios. Public debt to enhance government capacity and capabilities (measured by size of government) or to improve infrastructure can also positively contribute to growth and outweigh the potential adverse impact of high initial debt-GDP ratios.

The debate on expansionary fiscal consolidation: how robust is the evidence?

The country has long coped with similar debt-GDP ratios for some 20 years after profligate government spending in the 1980s.

Bonfire of the vanities

In the next section we develop and estimate a simple macroeconomic model to determine the effects of monetary, fiscal, and exchange rate policies, on foreign debt and debt-GDP ratios of Costa Rica, El Salvador, Guatemala, and Honduras.

We may then identify the appropriate policy mix to be used to achieve acceptable levels of foreign debt and debt-GDP ratios.

This indicates that devaluation of the national currency led to a reduction in foreign debt and debt-GDP ratios by increasing exports and decreasing imports.

Macroeconomic adjustments for debt-laden economies: the Central American experience